Mr. Djanogly: On the basis that £70 million was seen as acceptable for an assets test, why is that figure not acceptable for the test that is being used?
Miss Johnson: Clearly, there is not a straightforward one-for-one correlation between assets and turnover. I do not understand the hon. Gentleman's point. In 2000, we carried out research on the levels of turnover and assets of 110,000 UK companies. The data showed that the number of companies with a turnover of £45 million roughly equated to the number that had assets of £70 million, as I have said.
Mr. Lansley: For clarity, when the Minister refers to £70 million, is she referring to worldwide or UK assets?
Miss Johnson: It is a worldwide figure. If hon. Members are interested and feel that we may have erred on the wrong side in the matter, the research showed that £42 million was a better equivalence, so we have decided to err on the side of catching fewer by upping the figure to £45 million, in any event.
As the hon. Member for Huntingdon (Mr. Djanogly) recognised, that system will be monitored and the OFT will advise the Secretary of State from time to time as to whether it is still appropriate. As hon. Members are aware, the level can be changed by order if necessary. We are not seeking to increase the work of the OFT in some gratuitous way. We have picked the figure as carefully as we can. Experience will tell whether we have got it exactly right, but we believe
Column Number: 327that we have. I ask the hon. Gentleman to withdraw the amendment.
Mr. Djanogly: On reflection, I am not sure that we have heard the best justification of how the figure of £45 million was reached.
Miss Johnson: Perhaps the hon. Gentleman can clarify what reasoning he would see as best, other than research based on 110,000 companies and, in trying to get the figure exactly right, erring on the right side?
Mr. Djanogly: I thank the hon. Lady for pointing that out. In effect, she has said that new technology companies, which tend to have a small asset value but a higher turnover, will be prejudiced in comparison with old industries—I do not like to use the phrase smokestack industries—which might have a higher asset value but a much lower turnover. In other words, the Government are prejudicing legislation against new technology companies in favour of older companies.
Mr. Mark Field (Cities of London and Westminster): Perhaps my hon. Friend might like to comment on the view that it would have been more logical to try to catch a certain proportion, within the 110,000 companies surveyed. The rather arbitrary use of numbers, instead of using a percentage of UK companies, seems to be without genuine explanation.
Mr. Djanogly: My hon. Friend makes a good point. Indeed, in other classification systems, such as that used by the stock exchange in the test to determine the class of a merger, there are a range of different tests—an asset-based one, a turnover-based one—to apply to different types of industry. Yet in reviewing this legislation, the Government seem to be concentrating just on a turnover test. It would be helpful for the Under-Secretary to give us comparisons with other countries that have similar tests, as I requested in my opening remarks.
Miss Johnson: I would not want to promise the hon. Gentleman any such comparative data because it is probably not available in a comparable form.
I remind hon. Members that the purpose of the test is to ensure that we focus on companies with economic significance. In the two consultations on the mergers regime that took place throughout 1999 and 2000, businesses broadly welcomed the change. I believe that it is the right change to make.
Mr. Djanogly: Having heard the Under-Secretary, although I am still not entirely convinced, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Waterson: I beg to move amendment No. 65, in page 12, leave out lines 7 to 46 and insert—
The Chairman: With this, it will be convenient to take amendment No. 131, in page 12, line 7, leave out from ''that'' to end of line 46 and insert—
Column Number: 328
Mr. Waterson: This is a probing amendment, on a short but important point. The amendment would replace the supply of goods test with a market share test. We take the view that it is slightly illogical, to put it mildly, for the substantive test to be based on competition but for a test not based on competition considerations to be one of the criteria. The test based on the supply of goods or services of any description is not the same as a market share test, and should be replaced by one. We are simply trying to bring more logic to the legislation. I hope that the Government will reflect on that and perhaps see the wisdom of it.
Miss Johnson: I simply do not agree with that change. The thresholds have to be simple and easy to determine quickly. The existing share of supply test has fulfilled that function well for years and we were not pressed to revise it on consultation. My view is that if something is not broken, do not fix it. Market share would be a more difficult test and would lead to undue debate at the initial stage of the merger process. The purpose of the test is to take out of the scope of merger control a large number of transactions that are of no economic concern and to give business regulatory certainty that they will not fall within merger control. The share of supply is a more workable test for those purposes.
We also envisage extra resource burdens for both the OFT and business. It would take longer to calculate a more complex economic market share test. At the same time, business would feel the need to access more economic guidance, and the result could be to encourage more notifications on a prudential basis, increasing the administrative burden on the OFT. The definition in the Bill is simpler, more flexible and the right test in the context. Therefore, I hope that I have persuaded the hon. Gentleman to withdraw the amendment.
Mr. Waterson: I said that it was a probing amendment and it has served its purpose. The Under-Secretary's explanation was sensible and helpful, even if she seems to take amendments personally at times. We can see the logic behind her explanation and, therefore, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Field: I beg to move amendment No. 216, in page 13, line 6, at end add—
Again, this is a probing amendment. I appreciate that a share of supply test will not be brought to bear. However, the turnover test remains at a fairly high level—£45 million. To prevent an excessive regulatory burden on UK businesses, we want to ensure that the OFT does not have the opportunity to spend the time and valuable resources of businesses reviewing mergers that have no impact in the UK. As the Minister pointed out, the asset test of £70 million and the turnover test of £45 million apply to world-wide
Column Number: 329turnover. Therefore, in some cases—admittedly, it may be a relatively small number—there may be no impact whatever in the UK and we are keen to ensure that the companies involved would not find themselves falling foul of an immediate and automatic OFT inquiry. We propose that such transactions would not need to be notified in the same way.
Miss Johnson: The amendment would make it clear that a relevant merger situation would not include mergers that have no impact on the UK or a part of it. In a sense, I agree with the hon. Gentleman, but I do not think that the amendment is necessary as the new merger regime is already clearly centred on mergers that relate to activity in the UK.
The share of supply threshold stipulates that the supply must be in the UK market or a substantial part of it, so it is UK centred. The turnover test measures the turnover of the target company in the UK. I emphasise the words ''in the UK,'' because they meet the hon. Gentleman's point. The Government have no desire for the competition authorities to investigate mergers that are not directly relevant to UK markets or activities and our merger regime reflects that. We propose to concentrate more on making that clear. I hope that I have persuaded the hon. Gentleman to withdraw the amendment. If not, I regret that I shall ask the Committee to oppose it.
Mr. Field: I thank the Under-Secretary for that explanation. In part, one of the purposes of the amendment was to clarify the situation. I hope that it has been clarified for those companies that would otherwise fall foul of the turnover test for an OFT inquiry. Therefore, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 21 ordered to stand part of the Bill.
Clause 22 ordered to stand part of the Bill.
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